USD/CAD - Canadian dollar rally stalls

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The Canadian dollar rally has stalled. The loonie rallied 1.23% since the markets closed on Friday, September 7. However additional gains below the USD/CAD level of $1.3000 appear to be unsustainable.

The Canadian dollar is supported by renewed optimism around the U.S./Canada trade negotiations. Earlier this week, there were many reports of a "breakthrough following reports that Canada caved in to U.S. demands for access to the domestic dairy industry.

When the talks began, Prime Minister Trudeau was adamant that he would not sign a renewed North American Free Trade Agreement if it wasn’t "good for Canada," a phrase that meant protecting culture, protecting supply management and having a third-party dispute resolution mechanism.

The latest round of talks ended on Wednesday without any announcements for the U.S. or Canadian negotiating teams. Foreign Minister Chrystia Freeland returned home to attend a Liberal caucus meeting and to brief the prime minister.

Canada’s dairy farmers were not very happy with the rumoured developments. A vice president of the Dairy Farmers of Canada association said Canada’s dairy industry has already made concessions and have been forced to give up 5% of the market because of the TPP free trade deal. Trudeau has a dilemma. He has promised to protect the dairy industry, but if he does, he risks the wrath of Trump and 25% tariffs on Canadian car imports to the U.S.

CBC News quoted Statistics Canada as saying that the average age of a Canadian farmer was 55, noting more farmers are over 70 than under 35. The average net worth of a dairy farmer is $4.0 million. Canada’s auto sector, concentrated in Ontario, employs 140,000 workers and accounts for 20% of Ontario’s Gross Domestic Product. It wouldn’t be much of a stretch to suggest disgruntled autoworkers would crush Trudeau's re-election prospects if he sided with the dairy farmers.

Canadian dollar gains were also a factor of broad U.S. dollar selling pressures. The U.S. dropped against all the major G-10 currencies this week. The British pound (GBP/USD) was the biggest gainer when buyers emerged following positive comments from European Union officials about the Brexit negotiations.

The Australian dollar bounced from major support after the news that the White House wanted to reopen trade talks with China. The spectre of $200 billion of tariffs on imports of Chinese goods to the U.S. hangs over the market, but new talks were seen as a positive development.

This morning, the U.S. released retail sales, industrial production, industrial capacity data and the consumer sentiment Index. Better than expected data and the prospect of pre-weekend profit taking could undermine the Canadian dollar today.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians